As first-quarter earnings season kicks off this week for the gaming industry, Bank of America analysts are predicting Macau and Las Vegas will beat Wall Street projections, while regional operators in the U.S. will be in line with expectations.
Shaun Kelley, research analyst for Bank of America Securities, said in a note to investors Monday that their first-quarter estimates for adjusted earnings are well ahead of consensus, somewhere between 15% and 100%, while they’re 3% ahead of estimates for Las Vegas. They’re in line for regional casino properties, he added.
Beyond the first quarter, Kelley said they’re bullish in their sentiment on Macau, while adding that the comps for Las Vegas will be tough, set by the recent elevated bar.
“Macau headline beats could be very big this quarter, as we get the first real update post China’s move from zero-COVID,” Kelley said. “Key incrementals will be on market share, margins, and (operating expenses).
Kelley said their first quarter estimates are 15% ahead of consensus for Las Vegas Sands, 51% for Wynn, and 128% for MGM China.
“Keys for the quarter will be market share, especially for Las Vegas Sands (which reports earnings Wednesday), margins, and operating costs given the mix shift away from VIP,” Kelley said. “We expect larger variances and more stock volatility than normal, as investors digest relative positioning.”
Kelley said that with expectations higher for Wynn than Sands, “investors may be too sanguine about MGM’s early success in premium mass.”
For the start of the second quarter, Kelley said they expect optimism, with April’s run rate so far in line with what they reported in March.
They estimate in Singapore, Marina Bay Sands will have adjusted earnings of $406 million, 5% quarter-over-quarter.
For U.S. domestic gaming operators, Kelley said they’re in a “peak,” but a sustained earnings environment given stable underlying trends. With valuations about 5% to 10% above mid-cycle levels and year-to-date stock outperformance, they remain “largely neutral” on large-cap gaming operators and reiterate buy ratings on Boyd, Churchill Downs and VICI.
As for the Las Vegas Strip, Kelley expects strong results fueled by a possible record March, led by the NCAA basketball tournament and such trade shows as ConExpo, which brought 139,000 attendees to Las Vegas. Their survey showed room rates 44% higher year over year and that MGM should be a big beneficiary.
B of A estimates the average year-over-year revenue growth in the first quarter in Las Vegas at 24%, but only 2% in the second quarter, with a room-rate survey that’s decelerating.
Room rates were 14% higher year over year in April, but flat in May and 5% higher in June.
As for casinos that serve Las Vegas residents, trends are stable, with first-quarter gross gaming revenue expected to be 10% higher year over year. Their first-quarter estimates are 3% higher ahead of consensus, he said.
Their estimates for regional casinos are mostly in line with consensus, as the same-state gross gaming revenue is pacing about 4% higher quarter over quarter and 5% higher year over year. Weather appears to be less of an issue in the first quarter, but Lake Tahoe and Reno face headwinds due to snow.
In the digital realm through two months of 2023, online sports betting GGR is 84% higher year over year, while igaming revenue is 21% higher. Total gross gaming revenue is 54% higher year over year. Online sports betting hold improvement has persisted, tracking at 9.2% compared to 9% in the fourth quarter.
“Early March trends look strong, with New Jersey setting a new igaming GGR record,” Kelley said.
